Kohl's reports better-than-expected outlook despite supply chain strain.

• On Tuesday, Kohl's reported lower-than-expected sales for the fiscal fourth quarter, which was the key holiday quarter.
• The retailer forecasted a positive outlook for fiscal 2022, predicting a 2% to 3% increase in net sales.
• Kohl's CEO Michelle Gass announced that the company achieved an operating margin of 8.6% two years ahead of schedule, despite supply chain challenges and inflationary and labor cost pressures.

Despite lower-than-expected fiscal fourth-quarter sales in the key holiday quarter, investors lifted shares of the company on Tuesday due to an upbeat revenue outlook for 2022, despite ongoing supply chain obstacles that impacted retailers and reduced inventories.

Kohl's exceeded earnings estimates and achieved an operating margin of 8.6% ahead of schedule, thanks to its strategy to attract new customers and sell goods at full price points, despite supply chain challenges and inflationary and labor cost pressures.

According to Refinitiv, analysts had predicted year-over-year growth of 2.2% for Kohl's net sales in fiscal 2022. However, Kohl's is forecasting net sales to increase by 2% to 3% for the same period.

Gass stated that the company will continue to build on its momentum by focusing on its partnership with Sephora, which involves opening Sephora shop-in-shops at hundreds of Kohl's stores.

Kohl's is under increased pressure from activists to consider a sale, with one group seeking to gain control of its board. Despite rejecting takeover offers last month, Kohl's stated that they were undervalued.

Gass stated that Kohl's is currently undergoing a thorough process with bankers and financial advisors to handle any unsolicited bids and make proactive outreach.

"The strategic and financial plan ahead of us makes us feel very confident," she stated during a phone conversation.

According to a survey of analysts by Refinitiv, how Kohl's performed in its fourth quarter compared to Wall Street's expectations.

• Earnings per share: $2.20 adjusted vs. $2.12 expected
• Revenue: $6.22 billion vs. $6.54 billion expected

Kohl's net income for the three-month period ended Jan. 29 was $299 million, or $2.20 a share, compared to $343 million, or $2.20 per share, a year earlier. Despite this, earnings surpassed analysts' expectations of $2.12 a share, according to Refinitiv.

Despite estimates of $6.54 billion, net sales only grew to $6.22 billion from $5.88 billion the previous year.

Kohl's experienced delayed shipments of inventory due to global supply chain issues, which hindered the company's ability to meet demand, as stated by Gass during an earnings conference call.

During January, the Covid omicron variant caused a decline in shopper visits to brick-and-mortar stores, as reported by Kohl's.

Active and beauty lure shoppers

Kohl's highlighted its activewear business as a key strength, reporting a growth of over 40% in 2021. The retailer offers a range of products from top brands such as Nike and Under Armour, in addition to its own private labels for items such as leggings, sports bras, and hoodies.

Kohl's is relocating its activewear merchandise to more prominent locations at the front of its stores, as the category has been growing due to increased consumer demand for comfort during the pandemic and a focus on fitness routines.

Over the holidays, there was a noticeable increase in shopper visits, resulting in a significant boost for beauty. According to Gass, Sephora has already established shop-in-shops in roughly 200 stores. Kohl's reported a mid-single-digit sales increase at those locations compared to the rest of their chain.

Kohl's is attracting younger and more diverse customers through its Sephora shops, with over 50% of them adding items from other categories to their purchases. Additionally, 25% of those visiting the Sephora shops are new to Kohl's.

Neil Saunders, managing director of GlobalData Retail, praised Kohl's partnership with Sephora, which has made the retailer a more credible beauty destination. Nevertheless, he emphasized that it will not save the rest of the business unless efforts are made to improve the overall shopping experience for customers.

Saunders expressed in a note to clients that he remains hopeful for increased innovation in the women's apparel and home categories at Kohl's, as the company faces competition from off-mall retailers such as Target and Walmart.

Kohl's expects earnings per share in the range of $7.00 to $7.50, excluding items, for fiscal 2022, which is higher than analysts' expectations of $6.55 a share.

Kohl's declared on Tuesday that it intends to double its yearly dividend and purchase at least $1 billion of its stock in 2021.

Despite ongoing macro challenges and uncertainties, CFO Jill Timm informed analysts that the retailer anticipates growth in the upcoming months.

In 2022, Sephora will be a significant contributor to growth, with the second half of the year being stronger than the first, according to Timm. However, margins will decrease slightly due to higher freight costs and inflation, Kohl's stated.

The company will provide further information on its long-term financial goals during an investor meeting on Monday.

Kohl's stock price increased by 2.1% on Tuesday, reaching a market cap of $7.9 billion. The company has experienced a 15% growth in stock value year to date.

Find the full earnings press release from Kohl’s here.